Tuesday, November 16, 2010

Inflation still alive and well at the producer level


Producer prices rose 4.3% in the 12 months ending in October. Measured over the past 3 years—to eliminate the extreme volatility of 2008—producer prices are up at a 2.4% annual rate. Excluding food and energy prices, the producer price index is up 1.4% in the past year, and over the past three years, it's up at an annual rate of 2.2%. No sign of deflation here, and if anything I detect a gentle upward bias in the pace of producer inflation since 2003, which not coincidentally was when the Fed first began to adopt an aggressive accommodative policy stance.

You may see reports that highlight the fact that the rise in producer prices in October was much less than expected, but that needs to be taken with a grain of salt. As Brian Wesbury notes, the unexpectedly small gain in October prices (and the unexpectedly large drop in core prices) was likely due to a seasonal adjustment problem, since "this is the fourth time in the past six years that the core PPI has dropped in October ... and (it) may be due to how the government estimates prices of light trucks, which fell 4.3% in October."

13 comments:

Benjamin said...

Well, if I read the headlines correctly, the Dow is down because China may tighten monetary policy and the Dow is down because the USA may loosen monetary policy.

Okay.

Bill said...

Scott,

With the uncertainties over QE2, sovereign debt "crisis" and tax cut issues, do you think stocks are in for a rough ride through the end of the year perhaps wiping out the gains this year?

Scott Grannis said...

Markets have an inordinate fear of monetary tightening it seems. I think stocks are down in the US because the market worries that QE2 might disappoint, leaving monetary policy less easy than expected. China's tightening is very unlikely to upset its economy, and is a logical response to being tied to a weak dollar.

John said...

There will be no serious inflation without wage growth. There will be little wage growth with high unemployment. You can be quite certain of that.

Public Library said...

The Fed is going through with ALL $850B in purchases. There is no doubt in the market about this.

Benjamin said...

Inflation is already deflation, if you accept the findings of the Boskin Commission....

lowest core rate ever....Japan here we come?


NEW YORK (CNNMoney.com) -- Consumer prices for everything other than food and energy are rising, but at a rate so sluggish, it's the smallest price increase on record, the government said Wednesday.

The Consumer Price Index, a key measure of inflation, increased 1.2% over the past 12 months ending in October, the Bureau of Labor Statistics said.

0Email Print CommentBut after stripping out volatile food and energy prices, the more closely watched core CPI rose 0.6% on an annual basis -- the smallest price increase since the government started recording the data in 1957.

Benjamin said...

Global commodity futures markets experienced a major correction over the last five days of trading, as the bullish news from Benjamin Bernanke and the Federal Reserve gave way to much more bearish sentiment from the People's Bank of China and Ireland. The Thomson Reuters/CRB Index, which tracks the prices of 19 key raw materials, dropped 3.2 percent to 296.22, leaving the index down 7.2 percent since November 9.

Commodities down 7 percent since Nov. 9 and today the lowest core rate of inflation ever reported....economy operating well below potential....huge unemployment figs...real estate in a depression....

I would say the Fed has the field wide open....if it gets any wide-opener than this, I don't want to know about it....

Dr William J McKibbin said...

Inflation is the future, and history is my proof...

Benjamin said...

Dr. McKibben:

We have been hearing about the "inflation threat" for years...it is beginning to remind me of the "flouride threat" of my youth.

But on the other hand, maybe there was a flouride threat. We have flouridated our water, wiped out our brains, and now cannot untangle ballyhooed threats from real ones...


We are in deflation now, and Nippon is is on the phone.

Benjamin said...

Is the R-Party committing seppuku?

Here we are, housing starts are sinking, core CPI at 0.6 percent, unemployment huge...and they are pettifogging about inflation.

Sermonettes about price stability.

Hoo-boy.

Benjamin said...

BTW, look at page C1 of the Wall Street Journal. An article by Kelly Evans is very informative.

Inflation is dead, and we may see deflation. Prices are actually lower now than in 2008.

Public Library said...

Benji,

Home prices need to drop further and more people need to educate themselves about what homeownership is and is not.

It is about putting a roof over your head. It is not about supplanting the lack of personal production and savings with a bet you can cash out on your home upon retirement.

The McMansion era is over. Please let it pass and with it the many who bought into the hype along the way.

Then the more productive and entrepreneurial of us can take the economy to another + better level.

Money printing only helps perpetuate the false and inflationary hope.

Scott Grannis said...

I note that the CPI is only 0.1% below its 2008 high. Considering that energy makes up almost 10% of the CPI, and oil prices have fallen by almost 50%, there has been a good deal of inflation in non-energy items despite the ravages of the recession and high unemployment. In fact, the CPI less energy is up 2.3% since the headline index peaked in Aug. 2008.